Minnesota lawmakers propose ban on facility fees that trouble patients, increase spending

Nancy Rosenbaum had become diligent in paying medical bills after a recent health problem, whether they were physician fees, imaging fees, lab fees or treatment fees.

Then came the inexplicable one: The facility fee.

Her doctor’s office had already billed the Minneapolis resident’s health plan for a routine mammogram in 2023, but then wanted more money for reasons she didn’t understand. After her insurer didn’t cover the facility fee, Rosenbaum was asked to pay $246.99 on her own.

“I was confused, like, what is this?” Rosenbaum said. “This might not be the kind of medical bill that is going to flatten you, but its still $247.″

And, usually, insurers pay all costs of preventive screenings.

While controversial, facility fees are hardly new. Hospitals have charged them under federal guidelines to recoup the cost of staffing, technology and upkeep for their affiliated outpatient clinics, which sometimes provide more specialized care than standalone doctor offices and treat sicker patients. The fees have come under scrutiny as more patients pay them out of pocket, either because they were bearing the costs under high-deductible health plans or their insurers denied the claims and passed the buck.

Now, Minnesota lawmakers are considering banning many facility fees, or at least preventing large hospitals from charging them. Sen. Clare Oumou Verbeten, DFL-St. Paul, called them “predatory, unpredictable and very hard to avoid” when she proposed the ban last month. Her legislation was quickly folded into a larger health budget bill that the Senate approved, but the House has yet to consider.

The senator’s inspiration was Melissa Finnegan, a St. Paul woman whose family was billed for a $400 facility fee on top of the physician payment for a checkup last year on her daughter’s digestive issues.

“We can swallow $400 once, but we can’t do it for multiple, routine follow-up appointments,” Finnegan said.

Hospital leaders said they sympathize with patients over the sometimes confusing fees and bills. But they argued a ban would be crippling and force them to close clinics and cut services. The Minnesota Hospital Association estimates hospitals would collectively lose as much as $1 billion per year from a ban on facility fees, which help pay for everything beyond the doctors providing care.

“Physicians don’t practice medicine standing on a street corner,” said Dr. Rahul Koranne, the association’s chief executive. “If the facility fees are gone, the facilities will be gone, too,”

Lawmakers have compromised, exempting clinics on hospital campuses from the ban on most facility fees and only applying it to affiliated facilities that are 250 or more yards away from those campuses. The Senate omnibus bill also exempts rural, critical-access hospitals scattered across Minnesota. So the cost of the ban to hospitals could fall below the 10-figure estimate.

Sen. Jim Abeler, R-Anoka, cosponsored the ban to reduce health care costs for Minnesotans, but he has since advocated a middle ground because he said a $1 billion toll on hospitals is unreasonable.

“The correct number is somewhere between zero and a billion,” he said.

The bill wouldn’t spare Minnesota’s mid-sized hospitals, though, which don’t qualify for federal critical access payment boosts. Many of those hospitals are in financial distress, according to a Star Tribune analysis, but are vital to their regions.

Winona Health might have to close primary care clinics because it has no way to replace lost facility fees, said Rachelle Schultz, the hospital system’s chief executive. Winona is financially distressed, posting a 16% loss on hospital operations in 2023.

“If I lose a clinic 20 miles away, that puts a burden on those folks, which is primarily elderly folks who live in that rural community,” she said.

Waconia-based Ridgeview Medical Center is opening a much-needed mental health clinic in Chaska, based on financial projections that include facility fees, said Michael Phelps, the hospital’s chief executive. Without the fees, it will need additional charitable support to stay open.

Hospitals for years had incentives to acquire clinics, because they could convert them from standalones with no facility fees to affiliated clinics that could charge the fees, according to a report last year by the Public Interest Research Group. Some of that incentive disappeared with congressional budget-balancing in 2015, which restricted the facility fee amounts that hospitals could charge at clinics they acquired or built.

Several states also confronted the fees. Minnesota in 2019 required clinics to post notices, alerting patients that their hospital affiliations could result in extra charges. Connecticut phased in a ban on facility fees.

The new Minnesota legislation would prevent hospital-affiliated outpatient clinics, regardless of location, from charging facility fees for basic diagnostic and evaluation exams. It also would require on-campus clinics to track revenues from facility fees and report them publicly.

If and when facility fees are covered varies by insurer. The Minnesota Council of Health Plans urged an increase in base payment rates for health care by Medicaid, a state-federal program for the poor and disabled. That could support hospitals without them having to resort to “revenue streams like facility fees,” said Lucas Nesse, the council’s chief executive.

The Finnegans discovered that their daughter’s prior appointments had resulted in a facility fee, but it only became their burden in 2024, when they switched to a new workplace health plan that wouldn’t cover it.

The family switched to a pediatric gastroenterologist whose unaffiliated clinic won’t charge facility fees. Finnegan visited her daughter’s old M Health Fairview clinic in Minneapolis, and discovered that it had posted a notice of its hospital affiliation. It’s easy to overlook, she said.

Finnegan said she contacted lawmakers and asked them to pursue legislation because others might not have the flexibility to find standalone clinics and avoid fees.

“Its becoming more and more common,” she said.

Hospital leaders said that patients who switch clinics aren’t necessarily getting better deals, even if they receive simpler bills. The same federal rules that prompt hospital-affiliated outpatient clinics to charge separate physician and facility fees allow unaffiliated clinics to bill for them as well.

A 2023 report from the Health Care Cost Institute challenged that notion, showing that the price for a typical office visit was $118 when it involved an unaffiliated clinic but $186 at a hospital-based clinic. The gap was even wider when comparing ultrasounds and biopsies.

Koranne said the report was influenced by states with for-profit providers, and doesn’t reflect the non-profit health care landscape in Minnesota.

Rosenbaum’s preventive cancer screening had been at a clinic on the campus of Allina Health’s Abbott Northwestern Hospital in Minneapolis. So the Legislature’s proposed ban wouldn’t apply there in the future. She got out of her facility fee, she said, after protesting that the clinic hadn’t posted a notice that it was hospital-based.

The 53-year-old audio journalist would prefer simpler medical bills, but she isn’t convinced a ban will reduce health care spending.

Had the facility fee not been waived in 2023, the payments between herself and her insurer for her mammogram would have been $484. She underwent another mammogram at a standalone clinic in 2024, and she didn’t pay a dime. But her insurer paid $454 for the preventive screening. The difference between the two mammograms was $30.

“So these fees may be getting baked in,” she said.

Christopher Snowbeck of the Minnesota Star Tribune contributed to this article.